“The four most dangerous words in investing are this time it’s different” – John Templeton.
As safe as real estate is, compared to other investments, is multi-family the best? I personally have spent my real estate career involved primarily in this sector because of one of my most basic beliefs: You have to live somewhere. You do not need to own a business, land, or a manufacturing facility, but you have to live somewhere and so does everyone else. I believe that supplying others with one of the most essential requirements of living is always a good business to be in.
DISADVANTAGES
As with any investment, there are disadvantages to owning multi-family properties. CAPITAL REQUIREMENT can limit most, but you could start with an owner-occupied 4-unit building purchased with an FHA loan requiring 3% down. You could start with a long-term lease option on a building. You could have the seller carry a Land Contract or an All-inclusive trust deed with a graduated down payment over a few years. There are many other ways as well. You should always check with your real estate attorney and your CPA before moving ahead on any real estate investments. Another drawback is MAINTENANCE. If you are not handy, you can find reasonable vendors, but you may make some poor choices before you get the right ones. You should always be looking for good, reasonable, and dependable vendors to add to your list, as some will move on to other activities.
ADVANTAGES
There are many advantages to your multi-unit property. These include:
1) Less risk by having more than one rental- maximizing the land usage and if one is not paying or being evicted, the other rents are still there to help with your mortgage.
2) 1031 exchange. You can defer taxes by exchanging into another property and with your nonowner-occupied rental, you get a stepped-up basis for your heirs when you die. This is opposed to paying capital gains tax every time you sell a stock for a profit. Your CPA can explain how this will affect you. He or she knows your tax situation best.
3) Long-term fixed rate. Most investments don’t allow for this type of financing, so you may be able to grow your real estate portfolio faster.
4) Low supply and high demand. You have to look to find the right deal.
5) Rental increases. Even with rent control, in most cases, some raises are allowed. This along with equity gain adds to your return on your investment.
6) New laws in California With the passage of SB9 and SB10, you may be able to add an ADU (accessory dwelling unit) and increase the number of units on your property, as well as increase income and property value.
COMPARISON
When compared to other real estate sectors, I prefer multifamily. Other types of real estate investments include land, office, industrial, hotels, retail, special purpose (like amusement and churches), and more. There are also other types of real estate group investments such as syndications or REITs (Real Estate Investment Trusts) which can provide a more passive investment. At the end of the day, I think multi-family is the easiest, and safest real estate investment there is, with the possible exception of your home. Multi-unit investing is far from foolproof, but a good way to prepare for your and your family’s future.
“You have to expect things of yourself before you can do them.”- Michael Jordan
What we at PRS PROPERTIES CAN DO. We can refer you to companies doing background checks. We can also refer you to eviction professionals if needed. If you should decide to sell, we can help you exchange into a larger or smaller property or properties, or we can help you move into something with fewer management responsibilities. We can also recommend experienced licensed contractors who can perform any repairs or installations you may need prior to selling. We can also look at your building for other easy and inexpensive changes that might allow you to get a higher value. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.
We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, deferred maintenance, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are currently in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.
Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.
Remember – KNOWLEDGE IS POWER!
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